What has the oil and gas industry so excited about the Alberta Bakken – the stealth play of the year?

Some big companies on both sides of the 49th parallel have
spent millions buying thousands of acres of land – with almost no well
data. This flurry of activity says the industry is convinced the
Alberta Bakken could be North America’s next big play.

“I think what has the industry excited is the potential and
similarities between the Alberta Bakken and the Williston Basin (in
North Dakota),” says Mike Marrandino, President of Primary Petroleum,
which has 235 net sections in the Alberta Bakken in Montana.

“The (Alberta Bakken) reservoir size is over such a large land area, the potential is huge – if it does prove up.”

The original Bakken covers parts of North Dakota, eastern Montana and
southern Saskatchewan, and estimates of how much oil it could hold
(OOIP-Original Oil in Place) range from 5 billion to 167 billion barrels
of oil, making it one of the largest discoveries in North America in
decades. And the industry is always figuring out ways to increase
recoveries; i.e get a greater percentage of that oil out of the ground.

It is the largest onshore discovery in North America in decades, and
is really the only shale oil play on earth with a production history.
In many of the new shale plays emerging around the globe, the
management teams are saying – “This is a Bakken look alike!”

But are they? How does the Alberta Bakken stand up?

Analysts agree the source rocks from the two plays were built up at
the same geological time, but that eastern Bakken, in North
Dakota/Saskatchewan, was the inside of a giant crater. The western one
was a big west facing beach.

Canadian brokerage firm BMO Nesbitt Burns wrote a report on the two
Bakkens in October, and it said the Alberta Bakken meets the criteria
for a big Bakken like discovery (my translation in brackets after each
point):

“Geological properties….To the west in southern
Alberta and BC, the lower Bakken members actually correlate with the
Exshaw formation, while the upper Bakken member is similar to the basal
black shale unit of the Banff formation….”

TRANSLATION – the lower Bakken formation in North Dakota and
Saskatchewan is called the Exshaw in western Montana and southern
Alberta, but it’s basically the same thing. And the upper Bakken is
called the Banff formation in Montana/Alberta.

“….The Exshaw/Bakken is an organic-rich, marine, source rock that
occurs in the lower part of the Mississippian-Devonian system.”

TRANSLATION – there is oil in the rock at the bottom

“….The formation as a whole represents a petroleum system that can be tracked from source to trap.”

TRANSLATION – you can see where the oil was formed, and you can also
see how the oil has moved up until it hits the top of a cone in an
impermeable rock and stops—trapped there.

“….The Exshaw, Bakken (lower and upper members), and Lodgepole
formations consist of organic-rich, black, basinal laminites with
average TOC’s up to 12% in the lower Bakken, 40% in the upper Bakken,
5% in the Lodgepole, and over 20% in the Exshaw. Each formation
consists of Type II organic matter (characteristic of most marine oil
source rocks)…

TRANSLATION – the Total Organic Content (TOC) of the rock (this means
enough little bugs died in one place millions of years ago) is big
enough that it’s likely a lot of oil is present.

“…Unfortunately, the Lodgepole formation is typically less mature
than the Exshaw/Bakken shales and as such over time has demonstrated
the most oil expulsion of the three layers; in fact, it serves as the
source rock for most Mississippian oil pools.”

TRANSLATION – most of the oil is gone and moved up into oil pools closer to surface

“…Conversely, the Exshaw/Bakken is considered the most conducive (and
prospective) for horizontal multi-stage fracturing given that it has
experienced limited migration, and most of the oil remains contained
within the member.”

TRANSLATION – most of the oil is still there, and it looks like the best one.

“We have identified over 18 wells that have drilled through the
Bakken near or on our property,” says Primary’s Marrandino. His team
has been evaluating old data to better understand the similarities
between their Bakken package to that of the Bakken Williston Basin.
They have had to travel to Denver Colorado and Billings Montana to
locate the physical data – old core, or “thin sections” and analyze
them under a microscope to better understand the characteristics of the
Alberta Bakken formation and potential oil in place

“It further de-risks the play,” he says.

So it looks like the two plays have very similar geological characteristics. What about economics.?

BMO, Macquarie and Haywood Securities have all acknowledged that the
Alberta Bakken is a deep, overpressured formation. This leads them to
believe that the deliverability (economics) may be superior to the main
Canadian Bakken play in Viewfield, south-central Saskatchewan, but
lower than the North Dakota Bakken in the US.

Like most horizontal, multi fracked wells in the Bakken it is assumed
that the initial flow rates of the Alberta Bakken will be high, with
high decline rates, and a relatively large total amount of oil
recovered.

For the Alberta Bakken play BMO Capital Markets estimates that oil
companies will recover a total of roughly 250,000 barrels of oil per
well (this is called the “Estimated Ultimate Recovery” or EUR) and a
three-month average IP of 348 bopd. They say this yields a Before Tax
Net Present Value @ 10% of ~$4.5 million for a Horizontal Oil Case, an
Internal Rate of Return (IRR) of 75.9–108.8% and a Breakeven Supply
Cost (BESC) of $41.25–42.20/ bbl.

These economics are just below that of the Saskatchewan Bakken, BMO
adds. It’s as big an “NPV 10” (the present value of how much money the
producer might get after the well pays back its cost) as the
Saskatchewan Bakken – which has the highest valuation per barrel of any
basin/play in the country.

Keep in mind that there is only one well on which to base these
figures, and that was a vertical well which hit a natural fracture—not
exactly a typical well that investors expect to see over the life of
the play.

Concludes BMO Nesbitt Burns: “Ultimately, when comparing the Alberta
Bakken type well to the Saskatchewan Bakken type wells, the Alberta
Bakken—due to the overall thickness of the reservoir, and the
overpressured, Deep Basin setting—has the potential for a highly
economic well.”

There are a basket of juniors in Canada that now have some very
intriguing capital gains potential, if they get lucky with their
geology.

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